In our post last week, we talked about the importance of Advance Care documents in planning for the unknown. These documents can ensure your decisions and preferences regarding medical care are honored, even if you cannot communicate your wishes.
Advance care directives are usually comprised of two pieces: a living will, and a durable power of attorney for health care.
Power of attorney (POA) is likely a familiar term. But POAs come in different varieties. Today we’re going to break down the various types.
It is important to note that this article is to serve as informational only. We strongly recommend employing an attorney to help you with the complicated process of choosing and appointing POAs.
What is a POA?
First, there are a couple terms you need to understand:
Principal – the one granting powers
Agent or Attorney-in-fact – the one being given powers
A power of attorney is a legal document in which the principal appoints an agent to act for them. The principal decides exactly how much power and responsibility their agent has over their affairs. POAs can have timeframes and circumstances in which they are active.
All POAs expire with the principal’s death.
There are two general areas where power of attorneys are granted—healthcare and financial.
One person can hold both a healthcare and financial POA. POAs can be specific and limit your agent to handling only certain tasks, or they can be general and give broad authority.
A healthcare power of attorney:
Also referred to as a health care proxy, gives your agent the ability to make health-related decisions including treatment, medications, and end of life choices. Without a healthcare POA your loved ones may not be able to access your medical information or make decisions on your behalf.
Consider HIPAA and Privacy
If you do not have a healthcare POA, you may want to sign a HIPAA release and keep it one file. Even if you are trusting your spouse or child to make decisions in the event of an emergency, the Health Insurance Portability and Accountability Act may severely limit the information medical personnel can share.
A financial power of attorney:
Gives your agent financial and legal decision-making power. If you were to become incapacitated, your bills do not stop. Without a financial POA your loved ones may have no way of paying your mortgage or Medicare Supplement, for example.
Without a POA, if you become incapacitated, your loved ones may have to go through a long and expensive legal battle to become your “guardian” so they can manage your affairs.
You can also make access to bank accounts easier by filling out an authorization form and signature card from your bank. This is not the same as making your agent a joint owner of the account.
Types of POAs
Conventional POA
A conventional power of attorney allows you to appoint an agent to manage your affairs now, while you are healthy and of sound mind. If you become incapacitated this POA expires.
Facts to remember:
Begins when it is signed.
Ends when the principal becomes mentally incapacitated.
You can continue to manage your finances even after signing a conventional POA.
Durable POA
A durable power of attorney goes into effect the moment it is signed. But this type of POA is more “durable” than a conventional POA and does not break if you become incapacitated.
Because possession of the document allows your agent to make decisions for you now, even if you are not incapacitated, some who use a durable POA keep a copy in a secure location where their agent can access it, but do not give them a physical copy.
Facts to remember:
Begins when it is signed.
Ends when:
It is canceled by the principal, or
The principal dies.
You can continue to manage your finances even after signing a durable POA.
Springing POA
A springing power of attorney is called this because it “springs” into action when something specific happens, such as you become incapacitated.
Signing a document that gives someone else the power to make financial, health, or legal decisions for you can feel scary. You may think the springing option is smarter, as it doesn’t go into effect until specific conditions are in place. But, abuses of POA status usually occurs when the principal is incapacitated and can’t monitor their agent.
If you are leaning towards a springing POA because of a lack of trust, you probably shouldn’t be giving that person any kind of POA.
Another point to consider with springing POA, if the event and kind of incapacitation is not specific enough, the triggering of this type of POA may not be clear. It may even require a court proceeding to determine if it is in effect. If you need a POA, will you have time to wait on the legal system?
Your agent must also receive a written “determination” that the event outlined in the document has occurred. This can be a privacy issue and some doctors may balk about releasing medical information to someone without written or verbal consent.
Facts to remember:
Begins when specific events occur.
These events are outlined in specific language in the document.
Agent must obtain “determination” of incapacity before POA goes into effect.
Ends when:
It is canceled by the principal, or
The principal dies.
You can continue to manage your finances even after signing a springing POA.
Choosing an Agent
As mentioned above, choosing a POA is a serious task. You should choose someone you trust completely. Your agent should always have your wishes and preferences in mind. You are essentially handing them the keys to your kingdom and you need to believe whole-hardheartedly they will use that power wisely.
Your POA is bound by state laws to act in your best interest. But that doesn’t stop them from using your money to benefit themselves, should they have ill-intentions.
Naming two or more agents to serve as POAs at the same time can prevent a rogue agent but may slow down every decision. More commonly, people choose an agent and one or more successor agents. This way if the first person cannot or isn’t willing to be your POA, a successor is already in place.
What a POA can and can’t do
An unlimited, broad POA grants power over medical or financial decisions.
A financial POA agent can:
Pay your bills
File your taxes
Collect debts owed to you
Make investment decisions
Manage property
Apply for public benefits like Medicaid
A healthcare POA agent can:
Decide on care options
Choose your doctors and hospitals
Decide where you live
Pick your food/menu
Decide who cares for you
But there are still things your agent cannot do. An agent cannot:
Change your will
Make decisions after your death
This is handled by your will, trust, and/or executor
Help with Social Security applications, claims, or appeals
The Social Security Administration requires representatives to be authorized. Consider completing the SSA Appointment of Representative Form.
Representatives will be thoroughly vetted by SSA.
Manage VA benefits
The VA requires the appointment of a fiduciary by the veteran.
The appointed fiduciary is investigated by the VA.
Disclose personal information from Medicare
Medicare requires written or verbal permission
Change or transfer POA to another person
This is important to remember. Your POA can step down and decline responsibility at any time. If you do not have a successor in place, there is no one to take over their duties.
Becoming Someone Else’s POA
Having power of attorney is a big responsibility. If you are asked to be someone’s POA, sit down with the principal and learn about their current financial situation: bank accounts, loans, credit card accounts, investments, insurance, etc. You will also want to learn about their medical wishes. Make sure you understand what they want you to do, should you ever need to act on their behalf.
This is not a time for modesty or superficial conversation. Ask yourself, “If he had a stroke tomorrow and I was asked to manage his finances or medical decisions, do I understand their wishes clearly enough to do so?”
You should also learn the other people involved in the principal’s POA. For example, if you are healthcare POA, who is the financial POA? Or if you are unable to serve, who is the successor?
And most importantly, if you do not feel you are willing and able to serve as a POA, say no. If you say yes, your loved one is counting on you to come through for them in what could be their darkest time.
(Sources: Elder Law Answers, AARP 1 and 2, Senior Living, The Balance, Aging Care, and Nerd Wallet)